[Vision2020] RE: Petroleum Intelligence Weekly: Pemex Below Exxon & Chevron, etc.

[Phil Nisbet]

Ted You write

You are at least partly incorrect in your assessment that Pemex and Aramco 
are doing "one heck of a lot better" than Exxon or Chevron, depending on how 
you measure the complex set of variables involved.  I am not sure why you 
say the "big losers are the USA..."  To find the "big losers" in the USA in 
the world marketplace for oil profits we must examine the "big losers" among 
US based oil corporations, the problem being they are not such "big losers."

Phil:  Ted, I am not incorrect.  Oil prices made a major leap, which made 
the profit from an integrated production stand point turn toward the raw 
materials side of the equation.  Pemex or Aramco do not have exceptionally 
high lifting costs and were already making a killing per barrel sold, so a 
jump of close to $40 a barrel makes for a huge net profit increase.

Exxon from current quarterlies is making about $295 billion a year in gross 
revenues and net revenue of 29.6 Billion dollars.  But look at Aramco which 
is grossing 300 billion on oil sales with a net of 195 billion and tell me 
who you think the winner is?


Ted writes further:

I suppose you could say that the US consumers of gasoline, diesel, home 
heating oil, etc., are the "losers," but Exxon/Mobil and Chevron/Texaco are 
certainly not.  However, the US economy features the largest base of 
consumers in the world with disposable income to spend on gasoline, etc., so 
perhaps they are not "losers:" the profits generated by a gigantic 
corporation like Exxon/Mobil are recycled in our economy to some extent, 
though I think the "trickle down" theory of corporate profits used to 
justify tax cuts and breaks has some serious faults insofar as this approach 
offers real benefits to the lower classes.  However, are not the stock 
holdings of US citizens in the highly profitable and gigantic corporations 
Exxon/Mobil and Chevron/Texaco a large economic factor in the health of the 
US economy?  How does this make the USA a "big loser" in regards to the 
global oil economy?

Phil:  Ted, the shareholders of XOM are not doing badly, but their company 
is only netting in a tiny fraction of the money that the Saudis and the rest 
of the actual producers are.  Remember that XOM’s oil reserves are higher 
cost reserves and they also have a complete infrastructure to pay for, which 
the Saudi’s do not.  XOM and others in that field of integrated energy have 
to buy a bulk of their oil from others in order to deliver to consumers.  
Extremely high raw materials costs are not exactly something they look 
forward to.  Now if the price of gasoline was extremely high and the price 
of oil was dirt cheap, you would have XOM and its sister companies happier 
than clams, but that is not the case.  That’s why Exxon stock has not even 
made a double over the last couple of years, even though the price of oil 
itself has close to trebled.


Then you say the following Ted:
Selling huge amounts of oil turned into gasoline can generate huge profits, 
even if the company, such as Exxon/Mobil, is more a "downstream" corporation 
than other "upstream" corporations or state owned operations, such as 
Aramco.  And Exxon/Mobil leads the world in refining capacity at number one, 
resulting in Exxon/Mobil having control over more refined gasoline, thus 
their number one ranking for product sales, according to the info from PIW.

Data below offered at the web link to PIW lists Exxon/Mobil and 
Chevron/Texaco as outperforming Saudi Aramco and Pemex in several important 
economic variables. The charts at the PIW site, that does list Saudi Aramco, 
number one, above Exxon/Mobil, number two, but lists Pemex as below both 
Exxon/Mobil and Chevron/Texaco in the same rankings, shows that Exxon/Mobil 
has far more revenues than Aramco, but the Saudi oil and gas reserves under 
control of this state owned company induce the creators of this list to 
place Aramco ahead of Exxon/Mobil.

Phil:  The trouble with this is that the figures are for the period when we 
had mid 20’s for oil prices and you would be correct that at that time, XOM 
was doing quite nicely.  The rise in oil prices only marginally increased 
the profitability of Exxon, but raised earnings for firms like Aramco and 
Pemex through the roof.  Finished gasoline prices have not moved up at the 
pace that unrefined oil has and Exxon and the integrateds have to get the 
bulk of their oil from folks like Aramco and Pemex.


Then you note, Ted:


There are numerous variables to measure a corporations performance, and 
various accounting methods employed that can lead to differing results.  
Consider that the PIW chart listing "Rankings Based On Financial and Other 
Measures of Size" shows BP with the highest revenues at number one on that 
variable (with US based Exxon/Mobil number two and RD/Shell number three, 
with nearly the same figures as BP for revenue, dwarfing all other 
corporations on the list), though they are number six on that chart's 
overall ranking.  Also note Exxon/Mobil's standing as having the highest 
capacity for oil refining of any corporation, and number one product sales, 
which is part of the key to Exxon/Mobil's profits from oil

The charts discussed above can be viewed at this site, and reveal a complex 
set of variables used in the rankings offered:


http://www.energyintel.com/DocumentDetail.asp?document_id=111082

Phil:  As I noted, the figures you present were prior to the increase in oil 
prices.  They are also problematic in that they measure gross revenues and 
not net revenues.  The oil producers have always had a better take home, 
since they are only saddled with lifting costs.  XOM makes about ten cents 
on the dollar of sales and frankly the Federal and State taxes on those 
sales are higher than the net profits they take home to their shareholders.  
Compare that to the mark up the Saudis get and if Aramco was a pubco, I know 
which one I would be invested in.

Phil Nisbet

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